The End of the Free Market: Who Wins the War Between States and Corporations?

Ian Bremmer ought to have an easy time proving his basic premise: “only genuine free markets can generate broad, sustainable, long-term prosperity.” Yet he fails.

The book’s launching point is the financial crisis of the past two years. As Bremmer, a political risk consultant and business writer, concedes, even in free-market economies like those that exist in the U.S., Britain, and Japan, “massive state-managed injections of capital were necessary to refloat a global economy unhinged by a massive failure to regulate international financial flows.” The Bush Administration stepped in with bailouts of companies like AIG that were deemed “too big to fail,” while other countries not as committed to the market system lost faith in classic capitalism. In particular, the crisis strengthened the appeal of state capitalism, which the book defines as “a system in which the state plays the role of leading economic actor and uses markets primarily for political gain.”

Bremmer wants to prove that the crisis was an aberration, that free-market capitalism with reasonable regulation works best. Actually, he desperately wants capitalists to defend themselves.

But his own facts constantly undermine him. Not surprisingly, he calls China “the key” to the success or failure of state capitalism. And then, time and again, he shows China’s government-directed system successfully outmaneuvering the free-market West, whether by surviving the financial crash in stronger shape or by grabbing a stranglehold on crucial African resources.

Sometimes, the author sets up straw men to prove his point. Sure, lots of state-capitalist countries are undemocratic, if not downright authoritarian, including China, Russia, Algeria, and Saudi Arabia. However—as the book itself demonstrates—there are also varying degrees of state capitalism in vibrant democracies like Brazil, India, Mexico, and South Africa.

Another straw man: Sure, state capitalism can foster favoritism and corruption—but so can democracy and free markets. Former Illinois Governor Rod Blagojevich—currently on trial for allegedly trying to sell a Senate appointment in exchange for favors or bribes—was democratically elected, after all.

One of Bremmer’s solutions is to cede certain business sectors to state-run enterprises, and let market-driven companies focus on areas where their technical expertise counts for more than government backing. For instance, “on many traditional exploration and production projects, [Big Oil] doesn’t have the political clout to compete directly with the larger national oil companies,” such as Mexico’s Pemex or Russia’s Rosneft. So private oil companies should take on—er—“projects where oil is buried in the seabed at extreme ocean depths.” Well, it’s not Bremmer’s fault that he wrote this book before BP’s Gulf of Mexico disaster.

However, the weakness of most of his arguments is Bremmer’s fault. Why should China change a system that has made it a powerhouse? The book simply declares that “the Chinese leadership will have to reconsider core assumptions about government’s role.” Yet, just three pages earlier, the author notes that “Western commentators have been writing the Chinese Communist Party’s death notice for the past twenty years”—inaccurately. The final blow to his own argument comes on the same page as the assertion that China “will have to reconsider,” when Bremmer blithely shrugs that state capitalism is “likely to be around for decades to come.”

That doesn’t sound like free markets are the wave of the near future, anyway.

The book’s strength is its vast amount of historical, economic, and sociopolitical information, which luckily fills a full half of its pages and is written in a very readable style. There are detailed descriptions of twelve regions and countries, as well as a fascinating comparison of mercantilism, state capitalism, sovereign wealth funds, and classic capitalism.

So keep it around as a reference book. But capitalism will have to await a better champion.

Reviewer Fran Hawthorne is the author of five books on business and public policy, including Pension Dumping: The Reasons, the Wreckage, the Stakes for Wall Street (Bloomberg Press) and Inside the FDA: The Business and Politics Behind the Drugs We Take and the Food We Eat (John Wiley & Sons). She writes regularly on business and finance for The New York Times, Institutional Investor magazine, portfolio.com, Worth, Crain’s New York Business, and many other newspapers, magazines, and websites.